Dubai’s private sector activity gains traction in April
Steeper price discounting continues to squeeze profits
Dubai: Economic activity in Dubai’s private sector economy improved in April with further growth in output and new work according to the Dubai Economy Tracker Index (DET), a composite indicator of operating conditions in the non-oil private sector economy.
DET Index rose to 57.9 in April from 57.6 in March. While this is the highest reading since February 2015, it reflects sharp growth in new work and output — both reflecting the volume of activity in April.
Business conditions in the wholesale and retail sector improved at a record pace, partly influenced by sharp price discounting and promotional activity. Across the non-oil private sector as a whole, prices fell for the twelfth month running.
“The sharp rise in output and new work in April is encouraging, as it suggests GDP growth is accelerating after a relatively soft 2018. However, this growth in the volume of activity appears to be underpinned by price discounting, rather than an improvement in underlying demand. As a result, firms are reluctant to boost hiring and consumers are likely to remain cautious,” said Khatija Haque, Head of MENA Research at Emirates NBD.
Selling prices declined even as input costs were slightly higher, squeezing profit margins. On average, selling prices have declined every month for the last year. Employment was broadly unchanged in April, despite the 4-year high in the headline DET index. The average employment index for the year to April is just below the neutral 50 level, signalling a marginal decline in jobs in Dubai’s private sector this year.
April data for three key sectors revealed a record improvement in business conditions at wholesalers and retailers. The headline index for the sector rose to 60.1, the highest since it was first compiled in March 2015. The figure for travel & tourism was the second-highest on record (58.8, below March’s peak of 59.8) while the construction figure improved to 53.4.
New work in the wholesale and retail sector grew at the fastest rate since at least March 2015 on a seasonally adjusted basis, with this index rising to 70.8. Half of all firms surveyed reported higher new work in April relative to March, and none reported a decline. Output also increased sharply in April, but at a slower rate than in March.
The travel and tourism sector index declined from the record high posted in March, but still signals strong expansion in the sector last month. Output and new order indices were above 66 in April, although slightly below the March readings. However average selling prices declined in April. Employment in the sector was also fractionally lower in April.
The construction sector index rose to 53.4 in April from the March reading of 51.8 (which had been the lowest since November 2016). Both output and new work rose at a faster rate last month, but employment in the sector declined for the first time since December.
Firms in Dubai were the most optimistic they have ever been about their future output, with nearly 85 per cent of firms surveyed expecting their output to be higher next April. “This is not surprising given that 2020 is the Expo year, with both domestic demand and tourism expected to be firmer. The future output index is likely to remain elevated through the course of this year,” said Haque.